Does Beta Move with News? Firm-Specific Information Flows and Learning About Profitability

Abstract

We investigate whether the betas of individual stocks vary with the release of firm-specific news. Using daily firm-level betas estimated from intra-day prices for all constituents of the S&P 500 index, we find that the betas of individual stocks increase by an economically and statistically significant amount on days of quarterly earnings announcements, and revert to their average levels two to five days later. The increase in betas is greater for earnings announcements with larger positive or negative earnings surprises, for announcements that convey more information about other firms in the market, and for announcements that resolve greater ex-ante uncertainty. Our empirical results are all consistent with a simple learning model in which investors use information on announcing firms to revise their expectations about the profitability of the aggregate economy.

Keywords: Beta, comovement, earnings, announcements, information spillovers, realized covariance, realized volatility, high-frequency data.

JEL Classification: G14, G12, C32